Monday, October 5, 2009

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Why gold?
Gold has attracted investors throughout the centuries, protecting their wealth and providing a ’safe haven’ in troubled or uncertain times. This appeal remains compelling for modern investors, although there are also a number of other reasons that underpin the widespread renewal of investor interest in gold.

Safe haven
In volatile and uncertain times, there is typically a ‘flight to quality’ as investors seek to protect their capital by moving it into assets considered to be safer stores of value. Gold is among a handful of financial assets that do not rely on an issuer’s promise to pay, offering refuge from default risk. It provides insurance against extreme movements that often occur in the value of traditional asset classes in unsettled times.
Portfolio diversification
Most investment portfolios are invested primarily in traditional financial assets such as stocks and bonds. The reason for holding diverse investments is to protect the portfolio against fluctuations in the value of any single asset or group of assets that react in a common fashion. Portfolios containing gold are generally more robust and less volatile than those that do not.
Inflation hedge
Market cycles may come and go, but – over the long term – gold keeps its purchasing power. Its value, in terms of the real goods and services that it can buy, has remained remarkably stable. In contrast, the purchasing power of many currencies has generally declined due to the impact of rising prices for goods and services. As a result, gold is often bought to counter the effects of inflation and currency fluctuations.
Dollar hedge
Gold is often used as an effective hedge against fluctuations in the US dollar, the world’s main trading currency. If the dollar appreciates, the dollar gold price falls, while a fall in the dollar relative to the other main currencies produces a rise in the gold price. While this may also be true of other assets, gold has consistently proved among the most effective in protecting against dollar weakness.

Risk management
On the whole, gold is significantly less volatile than most commodities and many equity indices. In this respect it tends to behave more like a currency. Including assets with low volatility in a portfolio will help to reduce overall risk, with a beneficial effect on expected returns. Risk factors that may affect the gold price are quite different in nature from those that affect other assets.

Demand and supply
As is true of all asset prices, gold’s price moves in response to the changing balance between supply and demand. Mine production is relatively inelastic due to the long lead times that exist in gold mining, which explains why the rally in the gold price since 2001 has still not engendered an increase in production levels. Meanwhile, demand has shown sustained growth, due at least in part to rising income levels in gold’s key markets. This has created the foundation for the most positive outlook the precious metal has known for a quarter of a century.

What You Must Know to Appreciate Gold Basic Reasons To Invest in Gold Today
• Balance – Gold is the foundation for a balanced portfolio.
• Diversification – Your gold holdings serve to diversify paper investments.
• Insurance – Over time, gold acts as insurance, reducing stock risks and providing high return potential.
• Security – Gold is emergency money, portable and easy to sell in a financial crisis.
• Protection – Gold provides excellent hedge protection against severe stock market crashes or inflation.

Gold Has Real Monetary Value
Remember that investing in gold is not like buying stocks. Corporations go bankrupt, CEO’s and accountants cook the books, and stock prices can fall to zero.

Gold never becomes worthless.
When paper money was backed by gold, the U.S. Dollar had a stable, dependable backing. Sadly through, throughout history every paper currency not backed by gold has become worthless, given enough time. Gold always has an underlying physical and monetary value. Best of all, gold prices usually move opposite to stock prices over the long haul. This negative correlation of stocks to gold has historically meant that gold prices go up in the years when U.S. stock markets go down.

Gold, The Storehouse of Wealth
Over the decades, gold has proven itself as an ideal “storehouse of wealth.” Gold has survived every major U.S. stock market crash throughout history. From a monetary point of view, gold in still the only “true yardstick” against which all wealth is ultimately measured. The recent declines in the U.S. Dollar are more proof of the need to diversify from paper assets into gold. Keep in mind that every paper currency ever printed has declined in value or disappeared completely given enough time.

Gold Is Private, Portable Wealth
In contrast, when you own gold you have a monetary reserve; a private, portable source of wealth in an emergency and an appreciating asset during bad economic times. The very best reason of all for holding gold in your portfolio is so you can sleep better at night. In these times of financial instability with another terrorist attack just a matter of time, we feel it’s important to hold 10% to 20% of your portfolio in gold. If you buy gold low and sell high, gold can be a source of significant profits over the long-term. We feel buying gold today offers you excellent profit potential.In the most recent bull market for gold, the price of gold topped $850 per ounce. Today, gold is a bargain compared only to the past market high.

Growing Demand
In the decade ahead, the price of gold will be driven by growing demand and reduced supplies from Central Bankers. Two key factors on the demand are the legalization of gold ownership in China and elimination of the VAT tax on gold in England. As a result, we feel Gold is an investment whose time will come again— and soon. The future value that gold could attain is not limited except by the demand of dollars flowing out of stocks, bonds, paper money, and alternative investments. Historically, that has happened during times of war, rising inflation, inflated oil and gas prices, and with the devaluation of the U.S. Dollar. If any or all these economic factors have you worried, then gold may be the most logical alternative for your portfolio.

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